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Bullish Money Managers

By Floyd Norris April 28, 2008 8:56 amApril 28, 2008 8:56 am

Barron’s is out with its semiannual poll of money managers, and it finds a lot of bullishness. Some excerpts:

“More than 55 percent of poll participants think the market is undervalued, while just 10 percent say it’s overvalued. Eighty-seven percent expect to be net buyers in the next three to six months; only 13 percent intend to sell more shares than they buy.”

“More than 27 percent think financials will lead the market higher in the next 6 to 12 months.”

“One thing the Big Money men and women like is the outlook for the battered dollar. Almost 75 percent of poll respondents expect the greenback to strengthen against the euro in the next 12 months.”

“Inflation, their forecasts indicate, remains a potential irritant, but hardly a major problem, notwithstanding low interest rates. They predict that the consumer price index will rise 2.72 percent this year and 2.79 percent in 2009.”

“More than 45 percent of managers say they’re now bearish on oil and gold.”

What this all boils down to is a belief in the Fed. Its bailout of Bear Stearns has restored confidence in the financial stocks. Inflation is not a threat, and the dollar will rebound. Most money managers think there a recession has begun, but it will be short and mild.

I suspect that a lot of the managers think they are being contrarians in some of their views, particularly about financial stocks and the dollar. They think the panic about financial stocks was overdone.

The headline says one thing, the predicted numbers something else. Extrapolating the forecasts for the year end 2008 S&P 500, 50% bulls, 12% bears, the average estimate is 1390, slightly below where the index now stands. Not so bullish, on average, after all.

Wall Street knew in December 2007 that they are in trouble, but were not sure how deep…. They looked for any kind of excuse from the assassination of Ms. Bhuto, to fabricating a conflict in the Persian Gulf to beat up the markets and bring their sorry financial state to a head. Now that they are bailed out, by sucking the Fed in to support them, as I pointed out in one of my postings in March, they will “fabricate” enough good news to have the markets rally!!!

After all they need to keep the golden goose of making money in the stock market alive till the next set of rumors/panics become useful again to make the next pile of commissions and fees!!!

Mr. Norris I am sure that was a rhetorical question. A writer on one of your recent posts seemed to imply that negativity in the market was at or near the 1980 level and had an investor invest in the market at that time they would have enjoyed the longest bull market in history. This poll seems to indicate that the level of bearishness is not at the level it was in 1980. While I think their overall view is wrong, particularly on inflation, I think it is the prevalent mood among institutional investors. The long term 30 year government note is trading at about 4.6%, which reinforces the belief that inflation is not much of a concern to long term investors. However, I am not really sure where their optimism is coming from? What is their rationale in thinking that oil is overpriced? I know gold has dropped from its recent highs but the price of oil continues to surge. Do these money managers believe that the recent commodity surge is just another bubble and that there is no fundamental reason for the price of oil? That the increased use of oil by China and India will disappear or is not relevant to the American market? That rising food prices will suddenly disappear or that everyone will switch to hamburger?
In my mind the the CPI is a manipulated statistic that has no basis in reality. Food and fuel prices are not suddenly going to drop and as long as the FED continues to lower interest rates and the American Government does not get a grip on its own finances the dollar is not going to gain against the EURO, that is unless of course the European Union adopts fiscally irresponsible policies similar to those of the United States.
But this is just my opinion.

hmmm . . . no mention of housing in the bullish picture. i’m sure the managers just forgot to include it. or maybe it’s merely a “potential irritant” (housing is so 2007)?

as for financials . . . where are the earnings going to come from? securitization is gone. maybe they’re holding out for the next lbo wave. which should hit right after the credit markets loosen up. right after the banks announce their last writedowns, which will be final this time. any day now.

For a semi-literate and uninformed man to forecast 2.72% CPI this year and 2.79% next is one thing, but for highly educated, informed and “supposedly” honorable individuals to make such a prognostication is beyond grotesques! Your big-time money managers are hardly investors in any classical sense. They are merely a coven of courtesans who have sold their souls for “negative interest rates” and who feed gluttonously on the management fees of their naive clients!

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